FP1 FULL PRACTICE EXAM

Which statements about the evolution of the role of financial advisors is/are correct? [I] The financial services industry has moved towards an integrated market and so have advisors. [II] Advisors have fewer products and services to offer to clients. [III] Advisors require a greater level of knowledge to recommend sophisticated alternatives to clients. A. I only. B. I and III only. C. II and III only. D. I and II only.

B. I and III only. Advisors have to work within a highly integrated financial services market and must possess a much higher level of knowledge than before to satisfy increasingly sophisticated clients.

Which statement is true regarding the Lifelong Learning Plan? A. Students in part-time training and their spouses are allowed to withdraw $10,000 per year from their Registered Retirement Savings Plan (RRSP). B. Withdrawn amounts must be repaid to an RRSP in equal installments over a 5-year period. C. The first repayment will be due no later than 60 days after the 5th year following the first withdrawal. D. An eligible student is allowed to withdraw funds from their RRSP over a 10-year period as long as the total amount does not exceed $40,000.

C. The first repayment will be due no later than 60 days after the 5th year following the first withdrawal. General Feedback: The annuitant or the spouse or partner must be in enrolled in full-time training or postsecondary education, not part-time. Up to $10,000 a year can be withdrawn over a 4 year period, not a 10 year period. Amounts withdrawn must be repaid to the RRSP in installments over 10 years not 5 years. Reference: Module 3 - Section 3.

Ali, an advisor, is meeting with Mr. and Mrs. Shafei to discuss estate planning issues. Ali asks the Shafeis to give him a list of their assets, names of beneficiaries, and primary instructions in their power of attorney documents and wills. Which of the following pieces of information would Ali most likely ask for next? A. The type of investments they are comfortable with. B. Their investment time horizon. C. The names under which ownership of their assets is held. D. Their need for income or growth.

C. The names under which ownership of their assets is held. General Feedback: Ali will most likely ask for the names under which ownership of the Shafeis's assets is held as jointly held property is treated differently for probate and other purposes. Asking about investments or their need for income or growth would be secondary in an estate planning discussion. Finding out the physical location of their will and POA is not that important since Ali has already asked for the primary instructions contained in those documents.Reference: Module 3, Section 5.

Steve just lost his job with a manufacturing firm due to downsizing. He worked for the company for 12 years and was a plan member in their registered pension plan for the past 10 years. Which term represents Steve's right to his benefits under the registered pension plan? A. Delisting. B. Amortizing. C. Vesting. D. Underwriting.

C. Vesting.

Melissa Ahmad plans to make the following contributions into the Registered Educational Savings Plan (RESP) of her newborn daughter over the next three years: $750, $1,500, and $2,125. Calculate her cumulative CESG carry forward available at the end of the 3 years. A. $375 B. $1,625. C. $2,750. D. $3,125.

D. $3,125. General Feedback: The calculation is = ($2,500 - $750) + ($2,500 - $1,500) + ($2,500 - $2,125) = $3,125. Reference: Module 3, Section 2.

Jamal is a member of a career-average, defined-benefit pension plan with benefits calculated at 2% of earnings per year of service. He joined the plan 5 years before retiring. At the time he joined the plan, his salary was $55,000 and his income increased by $2,000 each year. Jamal joined the plan immediately upon being hired. Calculate Jamal's annual pension upon retirement. A. $4,000 B. $4,640 C. $5,000 D. $5,900

D. $5,900 General Feedback: Annual pension = [($55,000 + $57,000 + $59,000 + $61,000 + $63,000) / 5 years] x 2% x 5 years = $5,900. Reference: Module 3 - Section 3.

Choose the type of insurance that combines term and whole life for a predetermined contract period and guarantees a sum of money for either the beneficiar(ies) or at the end of the term for the contract holder. A. Variable life insurance. B. Universal life Insurance. C. Permanent life Insurance. D. Endowment life insurance.

D. Endowment life insurance. General Feedback: Endowment life insurance is a combination of term life and whole life. It provides coverage for a specified period of time (usually to age 65) and builds cash value. If the insured should die during the period of coverage, the beneficiary receives the face amount of coverage. If the insured does not die during the period of coverage, the policy owner receives the entire face value of the policy as a cash payment and the insurance coverage ceases. Reference: Module 4, Section 2.

On which of the basic sources of revenue does Canada rely? [1] Income [2] Transfers [3] Wealth A. I only. B. I and II only. C. II and III only. D. I and III only.

D. I and III only. General Feedback: Canada relies on income, consumption and wealth as sources of tax revenue.. Reference: Module 3, Section 1.

Which benefit is considered a non-taxable fringe benefit? [1] Employer contributions to an RPP on behalf of an employee. [2] Reimbursed moving expenses. [3] Membership fee for golf club used to entertain clients. A. I only. B. I and II only. C. I and III only. D. I, II and III.

D. I, II and III. General Feedback: These are all non-taxable employment benefits. Reference: Module 3, Section 1.

Andrew meets with his advisor and asks for information on a TFSA. Andrew is 18 years old, a resident of the United States and a student at Sheridan College in Toronto, Ontario. Until he graduates in three years, his earned income will be about $7,000 per year. Select the correct statements. [1] This year, the amount of Andrew's new TFSA contribution room would be $1,260. [2] To acquire new TFSA contribution room, Andrew would have to be at least 21 years of age. [3] If Andrew were to make a TFSA contribution, he would be subject to a tax of 1% per month. [4] To acquire new TFSA contribution room, Andrew would have to be resident in Canada. A. I and II only. B. I and IIII only. C. II and III only. D. III and IV only.

D. III and IV only. General Feedback: Andrew is not a resident of Canada. Any resident of Canada who is at least 18 years of age can open a TFSA. Contributions are limited to $5,000 a year (as of 2009) and indexed to inflation. Over-contribution will be taxed at the rate of 1% of the excess contribution amount every month. Reference: Module 3, Section 2.

Gareth dies leaving a small estate of $25,000 in savings accounts to his wife Margot. What is the most cost-effective document for his beneficiary Margot, the executor of his estate, to use to obtain the funds? A. Letters Probate. B. Affidavit of Execution of the Will. C. Affidavit of Value of the Estate. D. Letter of Indemnity.

D. Letter of Indemnity. General Feedback: If the amounts involved are relatively small, under $30,000 for example, a financial institution may be willing to accept a letter of indemnity or a probate bond from the executor in lieu of Letters Probate. This avoids the cost of probate for the estate. Reference: Module 3, Section 5.

A client indicates that she would prefer to use her $5,000 tax refund this year to pay down her mortgage instead of contributing to an RESP for her daughter. Choose the financial planning goal-setting activity that she is performing. A. Defining by time frame. B. Specific and measurable. C. Acceptable in level of risk. D. Ordered in level of importance.

D. Ordered in level of importance. General Feedback: Because resources are typically limited, your clients should prioritize their goals and focus on achieving the most important first. Reference: Module 1, Section 2. Score

Choose the type of credit that is usually the most expensive. A. Unsecured personal line of credit. B. Secured personal line of credit. C. Home-equity line of credit. D. Overdraft protection.

D. Overdraft protection. The interest rate associated with overdraft protection can be as high as 21% plus there is an overdraft fee. The typical interest rate for a secured line of credit is always the lowest since the home is pledged as collateral for the debt. Module 2 Section 2.

Select the type of insurance that can be extended, at the option of the policyholder, at the end of the term without medical evidence of insurability. A. Level term insurance. B. Decreasing term insurance. C. Convertible term insurance. D. Renewable term insurance.

D. Renewable term insurance. General Feedback: Renewable term insurance allows for the policy to be extended for another term of equal length without the insured having to provide medical evidence of insurability. Reference: Module 4, Section 2.

How long can a client's registered retirement income fund (RRIF) remain open? A. Until age 69. B. Until age 80. C. Until age 90. D. There is no maximum age.

D. There is no maximum age. General Feedback: A RRIF is designed to run until the client dies. Reference: Module 3 - Section 3.

There are certain rules of withdrawal for TFSAs and RRSPs. Which rules of withdrawal for TFSAs provides the greatest benefit to plan holders? A. Withdrawals may be made at any time B. Money withdrawn may be used for any purpose C. There is no limit on how much may be withdrawn D. There is no penalty or tax on withdrawals

D. There is no penalty or tax on withdrawals General Feedback: The biggest benefit to TFSA planholders (compared with RRSP planholders) occurs from there being no penalty or tax on withdrawals. This is in contrast with RRSPs where planholders face withholding taxes up front and they have to include the entire amount withdrawn into income and pay tax on it. Reference: Module 4, Section 1.

Yasmin faces a 22% marginal tax rate and an 18% effective tax rate at the federal level. Calculate the amount by which a tax credit of $200 will decrease her income taxes payable. A. $200 B. $100 C. $44 D. $31

A. $200 General Feedback: Tax credits reduce tax by the same amount, irrespective of the individual's marginal tax rate. Reference: Module 3, Section 1.

Sudha decides to stop working on her 61st birthday and applies for her Canada Pension Plan payments. Her maximum CPP payment at age 65 would have been approximately $864. Calculate how much Sudha will receive. A. $657 B. $691 C. $864 D. $1071

A. $657 General Feedback: When a CPP contributor decides to draw CPP benefits early, the amount of the benefit payable before or after age 65 is adjusted by a factor of 0.5% for each month before or after the individual's 65th birthday. Therefore, for Sudha, there are 48 months prior to her 65th birthday, so her payment will be reduced to: $864 - ($864 x 48 months x 0.5%) = $657. Reference: Module 3 - Section 3.

Jack has $200,000 in a registered retirement income fund (RRIF). Jack is 74 and his wife is age 69. Calculate the minimum dollar amount that he will have to withdraw from the plan this year. A. $9,520 B. $15,000 C. $20,000 D. $25,000

A. $9,520 General Feedback: In order to minimize the income payout, Jack could have based the RRIF payment on his wife's age. Since she is now 69, the minimum withdrawal will be 4.76% of the RRIF value of $200,000 or $9,520. Reference: Module 3 - Section 3.

Select the type of risk that SAG Co. encounters by using only common stock to finance its growth and acquisitions. A. Business Risk. B. Financial Risk. C. Market Risk. D. Systematic Risk.

A. Business Risk. General Feedback: A company that strictly uses common stock for financing incurs only business risk, which is the uncertainty associated with return on business investments. Reference: Module 3, Section 2.

Ming has met with his advisor who has presented an overview of the financial plans that he has prepared. His advisor asks Ming to approve the investment recommendations. Ming has carefully reviewed the proposals, but, has questions. Choose the phase of the recommendation process the advisor has completed correctly. A. Discuss strategies and recommendations with your clients. B. Allow your clients to ask questions and express concerns. C. Modify and revise your recommendations accordingly. D. Discuss the new recommendations with your clients

A. Discuss strategies and recommendations with your clients. At this point, the advisor has not permitted Ming yet to ask questions and express concerns and has therefore not modified or revised recommendations, meaning that there are no new recommendations available to discuss. He has only presented the initial proposals. Reference: Module 1, Section 2.

Choose the correct statement about RESPs. A. Family RESPs that add a beneficiary over 21 to the plan after 1998 are not eligible for the CESG. B. An RESP should be set up no later than age 12 in order to take advantage of the maximum CESG. C. The CESG is not paid to beneficiaries who are 16 or 17 years of age. D. The maximum CESG that can be paid out in any one year is $2,000 x 0.2 = $400.

A. Family RESPs that add a beneficiary over 21 to the plan after 1998 are not eligible for the CESG. B,C, and D are incorrect. There is no specific age which allows a beneficiary to maximize the CESG grant; beneficiaries who are 16 or 17 years of age can receive the CESG grant if certain conditions are met; and the maximum CESG that can be paid out in any one year depends on the income level of the primary caregiver. A is correct, as after 1998, plan regulations were amended to disallow adding beneficiaries who are over age 21. Reference: Module 3, Section 2.

Identify the correct statement(s). [1] An individual can borrow up to 95% of a home's purchase price. [2] The term of an open mortgage can be longer than that of a closed mortgage. [3] With a variable-rate mortgage, the borrower is protected against interest rate spikes. [4] The amortization period of a mortgage is the period required to completely pay it off. A. I and IV only. B. I and III only. C. II and III only. D. V only.

A. I and IV only. General Feedback: For a high-ratio mortgage, clients can borrow up to 95% of a home's purchase price. The amortization period is the period of time over which the borrower pays off a mortgage loan. Reference: Module 2 Section 2.

From a legal perspective, when does a power of attorney "officially" become effective? A. Immediately upon being signed by the grantor. B. After a 90 day cooling off period. C. Only when the grantor becomes incapacitated due to illness. D. Only when the grantor becomes incapacitated due an accident.

A. Immediately upon being signed by the grantor. General Feedback: The power of attorney usually takes legal effect immediately, with the understanding that it will be used when the grantor becomes incapacitated due to an accident or illness. Reference: Module 3, Section 5.

What best describes the condition in which a person is no longer able to manage their financial affairs due to a mental or physical disability? A. Incapacity. B. Contingent authority. C. Special power of attorney. D. Specific power of attorney.

A. Incapacity. General Feedback: As a general rule a person is considered mentally incapacitated if he or she is unable, by reason of mental infirmity, to solely manage his or her affairs, including financial affairs. Reference: Module 3, Section 5.

Which statement regarding the traits or values of financial advisors is correct? A. Professionalism is displayed by being competent and knowledgeable. B. Diligence is displayed by being honest with clients. C. Objectivity requires respecting clients' privacy. D. Confidentiality requires the advisor to make impartial recommendations.

A. Professionalism is displayed by being competent and knowledgeable. Professionalism is displayed by being competent and knowledgeable by keeping up to date regarding key aspects of the financial services industry.

Select the item that would provide you with quantitative data about your new client. A. Profit sharing plan statement. B. Risk tolerance assessment. C. Goal setting questionnaire. D. Fees and services agreement.

A. Profit sharing plan statement. Only the profit-sharing statement would provide you with quantitative data, i.e. numeric or other specific data that can be quantified. The other options would provide qualitative data. Reference: Module 1, Section 2.

What are the three steps involved in creating a budget? A. Set savings goals; determine expenses to cut; review budget monthly. B. Calculate total income; determine fixed survival costs; calculate quarterly budget. C. Set savings goals; determine expenses to cut; review budget annually. D. Calculate total income; determine expense priority; calculate semi-annual budget.

A. Set savings goals; determine expenses to cut; review budget monthly. General Feedback: The three steps to creating a budget are: set savings goals; determine expenses to cut; review budget monthly. Reference: Module 2 Section 1.

Which is correct regarding the amount of taxable employee benefits? A. The benefit amount is included in the employee's income. B. The benefit amount is included in the employee's pension adjustment calculation. C. The employee receives a tax credit for the amount of taxable employee benefits. D. A two-year vesting period is required to qualify for taxable employee benefits.

A. The benefit amount is included in the employee's income. General Feedback: All taxable employee benefits must be included as income on an employee's annual tax return. Reference: Module 3, Section 1.

At the federal level, when more than one person supports a child, who can claim the childcare expense deduction? A. The lower income earner must claim the deduction, subject to some exceptions. B. The lower income earner must always claim the deduction, with no exception. C. The higher income earner must always claim the deduction, with no exception. D. The deduction can be split between the two supporting individuals.

A. The lower income earner must claim the deduction, subject to some exceptions. General Feedback: If more than one person supports the child, the deduction must be claimed by the person with the lower amount of net income, subject to some exceptions. Reference: Module 3, Section 1.

Celeste has provided the following information from her previous tax year: Employment income $45,000 Alimony received $10,000 Dividends $1,500 Rental losses $3,500 Capital gains $750 Pension adjustment $5,500 Celeste wins $10,000 in the lottery and decides to put it all in her RRSP this year. She does not have unused RRSP contribution room. After several months, a friend tells her that she could be subject to a penalty. Calculate the amount of over-contribution on which she will be subject to a penalty. A. $3,825 B. $4,230 C. $5,770 D. $6,230

B. $4,230 General Feedback: Each individual is allowed to make a lifetime over-contribution of $2,000. Above that limit, a penalty is applied equal to 1% per month on the excess. Celeste's excess over-contribution is calculated as follows: RRSP contribution limit $3,770 Over-contribution limit $2,000 EQUALS $5,770 Total contribution made $10,000 Excess over-contribution $4,230 Reference: Module 3 - Section 3.

Calculate this household's Gross Debt Service Ratio (GDSR) given the following information. Annual household income (gross amount): $100,000 Monthly mortgage payments: $2,000 Annual property taxes: $5,000 Annual heating costs: $1,440 Total credit card balances outstanding: $20,000. A. 8%. B. 30%. C. 20%. D. 50%

B. 30%. General Feedback: The calculation is: Annual Mortgage Payments $24,000 + Property Taxes $5,000 + Heating Costs $1,440 divided by Annual Income $100,000. This equals $30,440 ÷ $100,000 = 30.44%. Reference: Module 2 Section 2.

Calculate the accounting rate of return on a stock purchase of $5,250 that is sold at the end of one year for a gain of $375. Round your answer to 2 decimal places. A. 6.38%. B. 7.14%. C. 7.69%. D. 9.30%.

B. 7.14% General Feedback: The accounting rate of return is calculated as (net gain or loss)/Initial investment x 100. Therefore, in this case, the return would be calculated as $375/5,250x100=7.14%. Reference: Module 3, Section 2.

Select the correct statement about RRIFs. A. Investment rules are less strict than for registered retirement savings plans. B. A minimum annual amount must be withdrawn. C. A RRIF holder must be at least 71 years of age. D. There are restrictions on maximum withdrawal amounts.

B. A minimum annual amount must be withdrawn. General Feedback: Rules regulating RRIFs are more stringent than those for RRSPs. RRSPs can be matured into a RRIF in whole or part anytime prior to age 71. RRIFs can be converted back to an RRSP if the plan holder has not year attained age 71. While a minimum amount must be withdrawn each year, there is no maximum. Reference: Module 3 - Section 3.

A couple wishes to maximize their savings in a tax-effective manner for their 5-year old child's post-secondary education. They wish to ensure that the funds accumulated will be used for educational purposes only. Select the most effective investment structure for their goal. A. An RRSP. B. An RESP. C. An in-trust account. D. A Tax-Free Savings Account.

B. An RESP. General Feedback: An RESP is the most appropriate choice for their goal. It will allow them to maximize their savings for their child's education due to the CESG grant, and the structure of the plan is such that it must be used for post-secondary educational purposes only.

Choose the accurate statement regarding who can contribute to a Tax-Free Savings Account (TFSA) A. Canadian citizens under the age of 65. B. Canadian residents age 18 or older. C. Non-residents over the age of 18. D. Non-residents over the age of 71.

B. Canadian residents age 18 or older. General Feedback: Feedback: Canadian residents aged 18 or older may contribute to a TFSA; non-residents may not. There is no maximum age for contribution to a TFSA. Reference: Module 3, Section 2.

Ram and Leela had their first child, Laxmi, six months ago. They have been married for six years and prepared wills three years ago, using the services of their lawyer. Each will leaves everything to the surviving spouse. Now that they have a child, what is the best course of action for Ram and Leela to take? A. Make an interlineation in each will to include Laxmi. B. Create new wills, revoking the old ones. C. Appoint a guardian for Laxmi using a power of attorney document. D. Leave the wills untouched, because under provincial laws a surviving child is looked after regardless of what a will says.

B. Create new wills, revoking the old ones. General Feedback: It's best if Ram and Leela each create a new will and include in it appropriate clauses to protect and care for Laxmi. A guardian would be appointed in a new will, not in a POA. While provincial laws may protect a surviving child, arranging for the care and protection of Laxmi would face delays, costs and hassles. Reference: Module 3, Section 5.

Choose the correct characteristic of a Registered Educational Savings Plan (RESP). A. RESPs cannot be established for an unrelated individual. B. Earnings can be withdrawn from any RESP if the beneficiary does not attend a post-secondary educational institution as long as certain conditions are met. C. RESP contributions cannot be made for beneficiaries over the age of 21. D. Interest paid on loans to obtain money for deposit into an RESP is tax deductible.

B. Earnings can be withdrawn from any RESP if the beneficiary does not attend a post-secondary educational institution as long as certain conditions are met. General Feedback: Choices A,C, and D are incorrect statements for RESPs. Single-beneficiary RESPs can be established for unrelated individuals; you may contribute for a beneficiary over the age of 21, however, a CESG grant will not be made; and interest on RESP contribution loans is not tax-deductible. However, earnings can be withdrawn if the beneficiary does not attend post-secondary as long as the specific conditions are met. Reference: Module 3, Section 2.

What category generally represents the largest expenditure of the average Canadian family and commonly offers the least flexibility? A. Food. B. Housing. C. Health care. D. Transportation.

B. Housing. General Feedback: The housing cluster represents the largest percentage of spending for most households and is usually the spending area with the least flexibility. Reference: Module 2 Section 1.

Identify the questions that a cash flow statement answers. [1] How much money is coming in? [2] Where is the money going? [3] Who is making the money? A. I only. B. I and II only. C. II and III only. D. I and III only.

B. I and II only. General Feedback: A cash flow statement tracks the flow of income and expenses—primarily what's coming in by way of income and what's going out by way of expenses.

Which losses can be carried back three years or forward for 20 years and applied against other sources of income? [1] Capital losses. [2] Business investment losses. [3] Non-capital losses. A. I and II only. B. II and III only. C. I and III only. D. I, II and III.

B. II and III only General Feedback: Business investment and non-capital losses can be carried back three years and forward for up to 20 years. Reference: Module 3, Section 1

Select the correct statement(s) about tax deductions. [1] Capital losses can be deducted from employment income. [2] Spousal support payments are deductible by the payer. [3] Child support payments are deductible by the payer. A. I only. B. II only. C. I and II only. D. II and III only.

B. II only. General Feedback: While spousal support payments are deductible by the payer, child support payments are not. Reference: Module 3, Section 1.

Vivian buys a life insurance policy in which the insurer pays policyholders dividends based on how well the life insurer is doing. If the insurer is profitable, Vivian will receive dividends. If the insurer underperforms financially, Vivian and other policyholders will receive fewer dividends. Indicate the type of insurance policy Vivian purchased. A. Variable life insurance. B. Participating life insurance. C. Limited-pay life insurance. D. Non-participating life insurance.

B. Participating life insurance. General Feedback: A participating life insurance plan participates in a distribution of surplus or profits, called dividends. Factors that can affect the amount of surplus or profit are: lower or higher operating and administrative expenses than planned; earning a greater or lesser return on investments than planned; having fewer or more death claims than forecast. Reference: Module 4, Section 2.

Determine an advantage of purchasing permanent life insurance as compared to term life insurance. A. Less expensive for younger people in good health. B. Policy lasts for entire lifetime if premiums are paid. C. Low-cost strategy for covering short-term insurance needs. D. Premiums decrease through the life of the policy.

B. Policy lasts for entire lifetime if premiums are paid. General Feedback: An advantage of permanent (whole life insurance) is that it stays in force regardless of the insured's age as long as premiums are paid. Reference: Module 4, Section 2.

Indicate the type of risk that would be exemplified by a country's implementation of expropriating natural resource assets. A. Market risk B. Political risk C. Credit risk D. Purchasing power risk

B. Political risk General Feedback: In most cases, political risk takes the form of government regulation or deregulation but nationalization or expropriation cannot be ruled out entirely. Government regulation has always been a potential economic reality and has become increasingly important in determining business profitability. Reference: Module 3, Section 2.

Haseeb is an advisor who regularly attends industry seminars and takes continuing education courses. What type of responsibility is he demonstrating? A. Integrity. B. Professionalism. C. Objectivity. D. Diligence.

B. Professionalism. Haseeb is demonstrating the responsibility of professionalism, which states that an advisor must be competent, knowledgeable and up to date regarding all aspects of the financial services industry. Reference: Module 1, Section 2.

Choose the item that is included in the calculation of the Gross Debt Service Ratio (GDSR). A. Personal loan payments. B. Property taxes C. Insurance premiums. D. Overdraft charges.

B. Property taxes. The GDSR is the calculation of all housing costs, whether rent or mortgage as a percentage of annual gross income. Mortgage costs include principal and interest payments, property taxes, heating and condominium fees (if any). Reference: Module 2 Section 2.

Determining a client's risk tolerance, "dreams and desires" are all examples of an advisor collecting what type of data? A. Emotional data. B. Qualitative data. C. Bottom- up data. D. Quantitative data.

B. Qualitative data. Qualitative data is any information that helps you to assess your clients' understanding of economic concepts and to determine their tolerance for risk. Qualitative questions will also help you to identify areas where goals and attitudes may conflict so you can help your clients to establish reasonable objectives and priorities. Reference: Module 1, Section 2

Craig is planning on vacationing in the United States for 3 months. He is concerned that the contractors making repairs on his Canadian home will not be able to fulfill their obligations without someone easy available to sign agreements. Select the appropriate recommendation that Craig's adviser could make to help Craig with this specific need. A. Power of Attorney for Property. B. Restricted Power of Attorney. C. Contingent Authority Power of Attorney. D. Substitute Power of Attorney.

B. Restricted Power of Attorney. General Feedback: A Restricted Power of Attorney will allow Craig to appoint an attorney who is responsible solely for issues arising with the renovations of his home. Reference: Module 3, Section 5.

Select the statement that correctly identifies "speculative risk" in reference to risk management A. Amount of risk that an insurer is willing to assume. B. Risk resulting in an uncertain degree of profit or loss. C. The variance between anticipated losses and actual losses. D. A sub-category of risk in which loss is the only possible outcome.

B. Risk resulting in an uncertain degree of profit or loss. General Feedback: With speculative risk, either a profit or loss is possible. Reference: Module 4, Section 1.

Identify the correct description of what "not in advance" refers to in Canadian mortgages. A. There are no prepayment options allowed on the loan. B. The principal payment is deducted before the interest is calculated on the loan. C. Prepayments are only allowed on the anniversary date of the loan, not in advance of that date. D. The mortgagor cannot pay off the mortgage in advance of the maturity date.

B. The principal payment is deducted before the interest is calculated on the loan. In the example with Bryan Lee and Imre and Katrina Docek, he advises the couple to take advantage of the "not-in-advance" calculation of interest by making an annual lump-sum payment on the loan. When they make two mortgage payments at once on an annual basis, the extra payment goes directly toward the principal. This shifts the interest-to-principal ratio and eliminates the debt sooner. Reference: Module 2 Section 2.

By and large, what statement below is true in regards to the current landscape in Canada for financial advisors? A. There has been a dramatic shift to fee based advice as it's perceived as unbiased. B. The role has shifted to a client driven model where building a strong client relationship is key. C. The business is now product driven where it's all about selling higher commissioned products. D. The industry is focusing on reducing costs and finding the most inexpensive investments for clients.

B. The role has shifted to a client driven model where building a strong client relationship is key. The role of the Advisor in the financial services industry has changed in recent years from one that is product driven to one that is client driven. Reference: Module 1, Section 1

Select the most useful goal for setting investment priorities. A. "I'm not sure when we'll retire, but we want to be able to travel for 10 or so years at that time." B. "We want to buy a big house in a nice neighbourhood" C. "We will need 70% of our current income level to retire and maintain our lifestyle." D. "I want to be able to retire comfortably based on my current lifestyle."

C. "We will need 70% of our current income level to retire and maintain our lifestyle." General Feedback: Options a, b, and d are not measurable or quantifiable; only c is measurable and quantifiable. Thus, only "c" is usual for setting priorities. Encouraging clients to set specific, measurable targets instead of vague and general goals serves two functions: It helps to clearly and explicitly define financial objectives. It helps to measure and monitor the performance of the financial plan. Reference: Module 1, Section 2

It is December 31, 2015. Scott, a 45-year old Canadian resident has a Tax-Free Savings Account (TFSA). The fair market value of the TFSA is $45,000. Scott's unused TFSA contribution room at the end of last year was $12,000. Last year, Scott took a distribution from his TFSA of $4,000. Assume that for that year, the TFSA contribution limit is still $5,000. This year, Scott has not made any TFSA contributions. Calculate Scott's unused TFSA contribution room. A. $16,000 B. $18,500 C. $21,000 D. $24,500

C. $21,000 General Feedback: Feedback: Contribution room every year consists of the TFSA dollar limit for that year plus any withdrawals made in the preceding year, along with any unused contribution room. In this scenario, $12,000+$5,000+$4,000 = $21,000. Reference: Module 3, Section 2.

On February 10 of this year, Angus received a $25,000 loan from his employer. The interest rate on the loan was 1.25% lower than the then-current prescribed rate of 5.50% (this rate did not change for the rest of the year). Calculate Angus' interest benefit from this low-interest loan for the year. A. $943.14 B. $312.50 C. $277.40 D. $221.92

C. $277.40 General Feedback: Interest rate imputed on loan = 5.50% - 1.25% = 4.25%; Interest benefit = $25,000 x (5.50% - 4.25%) x 324/365 days = $277.40. Reference: Module 3, Section 1.

Bob earns $500 in dividends from his $5,000 common share investment that he invested in instead of a $5,000 bond investment that would have earned him $750. Calculate the financial cost of Bob's share investment. A. $250. B. $4,500. C. $5,000. D. $5,250.

C. $5,000. General Feedback: The financial cost of his investment is the dollar amount that represents the investor's initial investment into the asset. Thus, Bob's financial cost is $5,000. Reference: Module 3, Section 2.

Which statement best describes an efficient financial plan? A. A plan that delivers the desired results. B. A plan that uses a balanced approach to selecting investments. C. A plan that generates optimal results for the least amount of money. D. A plan that incurs the highest rates of return for the least amount of risk.

C. A plan that generates optimal results for the least amount of money. An efficient plan produces the best results for the least money, while an effective plan produces the desired results. Reference: Module 1, Section 2.

Which statement about personal income taxation is correct? A. Tuition fees are deductible when calculating net income. B. Spousal support payments received during the year are not taxable. C. Academic post-secondary scholarships are no longer taxable. D. Only the first $10,000 of moving costs incurred to move 40 km. closer to work are not taxable.

C. Academic post-secondary scholarships are no longer taxable. General Feedback: Scholarships are not included in income. Reference: Module 3, Section 1.

Henry, a 48 year-old director of engineering at an environmental firm, has $50,000 in Canada Savings Bonds on which he earns 3% interest annually. He has paid off the mortgage on his house but he has an outstanding $30,000 bank loan (taken out for home improvements) on which he pays 6% interest. His marginal tax rate is 50%. Select the action an advisor is most likely to recommend to Henry? A. Cash in $30,000 of CSBs and pay off the bank loan. B. Don't do anything; let the situation remain as it is. C. Cash in $30,000 of CSBs and pay off the bank loan, then borrow $30,000 and invest it in a conservative balanced fund. Student Response D. Cash in $30,000 of CSBs and pay off the bank loan, then borrow $50,000 and invest it in an aggressive equity fund.

C. Cash in $30,000 of CSBs and pay off the bank loan, then borrow $30,000 and invest it in a conservative balanced fund. General Feedback: The most likely recommendation involves paying off the bank loan by cashing in CSBs and then borrowing the previous loan amount and investing it so that interest on the new loan becomes tax deductible. While borrowing more than the previous loan amount (in C.) could be an option, it would change the risk profile and risk tolerance level, and that may not be the best route to take. Reference: Module 4, Section 1.

Nabila, an advisor, receives a call from an insurance broker asking for information about the assets she manages for a client. Nabila refuses to speak to the broker about her client without the client's permission. What type of responsibility is he demonstrating? A. Integrity. B. Professionalism. C. Confidentiality. D. Diligence.

C. Confidentiality. General Feedback: Nabila is fulfilling the responsibility of Confidentiality, which states that an adviser must respect a clients' privacy and treat their information with confidentiality. Reference: Module 1, Section 2.

When referring to a Power of Attorney, when does "contingent authority" usually begin. A. Signing of document. B. Agreement of joint attorneys. C. Declaration of incapacity of grantor. D. Declaration of the court.

C. Declaration of incapacity of grantor. General Feedback: The power of attorney comes into effect, granting the authority of the attorney to act, only upon the declaration of incapacity. Such a declaration is to be made by an independent person, such as a family doctor named in the PA. Reference: Module 3, Section 5.

Select the first step in the financial planning process. A. Analyzing a client's data and information. B. Recommending strategies to meet goals. C. Establishing a relationship with the client. D. Collecting a client's data and information.

C. Establishing a relationship with the client. The first step in the financial planning process is for an advisor to establish a relationship with the client; everything else follows.

Select the most common Canadian mortgage repayment term and amortization period. A. One year term and 15 year amortization period. B. Two year term and 20 year amortization period. C. Five year term and 25 year amortization period. D. Ten year term and 35 year amortization period.

C. Five year term and 25 year amortization period. A mortgage term can range from six months to 10 years and in rare cases up to the length of the amortization. The standard repayment term in Canada tends to be five years, and the standard amortization period is 25 years, although it can be as long as 30 years. Reference: Module 2 Section 2.

Hiba has a Power of Attorney for her brother's affairs. Select the action(s) that she can perform on behalf of her brother. [1] Sell securities. [2] Change will. [3] Purchase property [4] Change beneficiary designations. A. I and II only. B. II and III only. C. I and III only. D. II and IV only.

C. I and III only. General Feedback: A Power of Attorney grants Hiba the ability to sell securities and purchase property, but, not to change a will; the ability to change a beneficiary designation is not generally considered permissible with a Power of Attorney. Reference: Module 3, Section 5.

Your client's goal is to improve her cash flow. Select the strategy that will be most effective in helping her to reach her goal. A. Improve investment return. B. Reduce flexible expenses and lengthen time frame for investments. C. Increase income and reduce expenses. D. Contribute regularly to an emergency fund.

C. Increase income and reduce expenses. Cash flow is the amount of money available for investment or other purposes. In this scenario, the client is best able to free up money for investments by increasing the amount of money coming in (income) and reducing the amount of money going out (expenses). While (b) would improve cash flow by reducing some expenses, the addition of the increase in income in (c) makes it more effective.

Meher holds two investments that he decided to sell this year. He purchased Investment X in 2008 for $4,000 and sold it in 2011 year for $7,500. He purchased Investment Y in 2010 for $6,300 and sold it in 2011 for $2,500. Meher earns $66,000 a year. Identify the tax implications on these investments. A. Meher has a taxable capital gain on Investment X of $1,750 and an allowable capital loss on Investment Y of $1,900. He can claim a net allowable capital loss on his tax return of $150 to reduce his salary income. B. Meher has a taxable capital gain on Investment X of $3,500 and an allowable capital loss on Investment Y of $3,800. He can carry forward the net allowable capital loss of $300 indefinitely or carry back the loss three years to offset taxable capital gains. C. Meher has a taxable capital gain on Investment X of $1,750 and an allowable capital loss on Investment Y of $1,900. He can carry forward the net

C. Meher has a taxable capital gain on Investment X of $1,750 and an allowable capital loss on Investment Y of $1,900. He can carry forward the net allowable capital loss of $150 indefinitely or carry back the loss three years to offset taxable capital gains. General Feedback: Meher's net allowable capital loss for this year is calculated as follows: Investment X Proceeds $7,500 Cost $4,000 Capital gain $3,500 Taxable capital gain $1,750 ($3,500 x 50%) Investment Y Proceeds $2,500 Cost $6,300 Capital loss ($3,800) Allowable capital loss ($1,900) ($3,800 x 50%) $1,750 of the allowable capital loss on Investment Y can offset the taxable capital gain on Investment X. The remaining $150 of allowable capital loss cannot be used to reduce other income. Instead, it can be carried forward indefinitely to be used against other taxable capital gains in future tax years or carried back up to 3 years and used against taxable capital gains claimed in those years. Reference: Module 3, Section 1.

Kim does not recommend an investment fund to her clients that is heavily promoted by her own firm's marketing department because her analysis demonstrates that it is not consistent for her clients' goals. Select the type of responsibility that she is demonstrating. A. Integrity. B. Professionalism. C. Objectivity. D. Diligence.

C. Objectivity. Kim is fulfilling the responsibility of "Objectivity" which states that an adviser must not make recommendations that benefit the adviser or the adviser's institution when there are other products and services that might serve an adviser's clients better. Reference: Module 1, Section 2.

Choose the mortgage payment strategy that would likely result in the greatest interest savings for a client. A. Changing from monthly to bi-weekly mortgage payments. B. Changing from monthly to weekly mortgage payments. C. Reducing the amortization period from 25 years to 15 years. D. Making an extra monthly mortgage payment at the beginning of each year.

C. Reducing the amortization period from 25 years to 15 years. General Feedback: While many clients will often initially assume a 25-year amortization period on a mortgage loan, it is generally advisable to select the shortest possible amortization period. A mortgage loan with a 20- or 15-year amortization period is paid off faster than a mortgage loan with a 25-year amortization period. A shorter amortization period will save substantial interest costs and improve a client's net worth. Reference: Module 2 Section 2.

You are reviewing a client's investment portfolio and are pleased to see that all of her GICs were purchased before a recent substantial fall in interest rates. You note that she has a mortgage on her home, a substantial emergency fund, and an up-to-date insurance policy. Choose the action that you should recommend at your review tomorrow. A. Cash in GICs. B. Eliminate the emergency fund. C. Refinance the mortgage. D. Review the insurance policy.

C. Refinance the mortgage. In this example, a change in economic conditions would trigger a review of the mortgage. The other components of her portfolio would not benefit from a change as they are already protected from the impact of the economic change, however, the mortgage would be positively affected if it were to be refinanced at this point. Reference: Module 1, Section 2.

What will result from choosing accelerated mortgage payments? A. Lower payments. B. Unchanged cash flow. C. Shorter amortization. D. Repayment penalties.

C. Shorter amortization. General Feedback: An accelerated payment schedule can have the same effect as making one extra monthly payment each year. As is shown in the table displayed in the example for Janet Benjamin, as the mortgage payments increase, the amortization period decreases. Module 2 Section 2 page #27.

Carlisle has asked his adviser for advice about drafting a Power of Attorney for his personal assets. He wishes to appoint his brother, but is concerned that as his brother travels frequently for business he might not be available at all times if needed. Choose the recommendation that Carlisle's adviser might make. A. Contingent Power of Attorney. B. Personal Care Power of Attorney. C. Substitute Power of Attorney. D. Power of Attorney for Property.

C. Substitute Power of Attorney. General Feedback: A Substitute Power of Attorney is useful where the attorney may not be able, or willing, to act for any or all of the period. A substitute attorney should be named to avoid the costs and delays of applying to a court to name a substitute. Reference: Module 3, Section 5.

Select the statement that accurately describes a condition of a qualifying Tax-Free Savings Account (TFSA) arrangement. A. Only the issuer may receive payments from a TFSA. B. The arrangement must be maintained for the benefit of the holder and the holder's named beneficiary. C. The arrangement must be either a deposit, an annuity contract or an arrangement in trust. D. The arrangement must be registered with the Office of the Superintendent of Financial Institutions.

C. The arrangement must be either a deposit, an annuity contract or an arrangement in trust. General Feedback: The holder is the individual who will receive payments from a TFSA; the arrangement is maintained for the benefit of the holder; and it must be registered with the Minister of National Revenue. Reference: Module 3, Section 2.

Henry, age 45, contributes $7,000 annually to his RRSP which is 60% invested in equity mutual funds and 40% in fixed-income products. He is planning to retire at age 60. Which tax planning techniques is Henry using? A. Trading across taxpayers. B. Trading across investment vehicles. C. Trading over time. D. Trading over organizational forms.

C. Trading over time. Henry is deferring the payment of income tax on funds held in his RRSP for at least 15 years until his retirement at age 60. Henry is using the "trading over time" technique. Reference: Module 3, Section 1.

Shabhana and Ravi are 58 and 67 years old respectively and have been married for 35 years. They have a condo in the city and a cottage by a lake, both jointly held. They have only one child, Sachin, who is 32 years old and will eventually inherit their entire estate. The cottage's value has gone up substantially since they purchased it. Shabhana and Ravi want to obtain life insurance so that Ravi has a lump sum available when capital gains taxes become payable on the cottage. Which of the following life insurance policies would be most suitable in their situation? A. A joint life first-to-die policy. B. A separate policy on Ravi's life and on Shabhana's life. C. A policy on Shabhana's life only. D. A joint life last-to-die policy.

D. A joint life last-to-die policy. General Feedback: The tax liability will arise on the second death and therefore a joint life last-to-die policy will be ideal in their situation. A separate policy on their individual lives would be more expensive. Reference: Module 3, Section 5.

Gary has specific wishes regarding health care in the instance of severe injury. He is concerned that these will be followed. Indicate what his advisor could recommend to Gary to help him to achieve this goal. A. Power of Attorney. B. Living will. C. Contingent Power of Attorney. D. Advanced Care Directive.

D. Advanced Care Directive. General Feedback: An advance care directive or advance healthcare directive is a form of legal document by which a person seeks to consent to, or refuse, medical care or treatment in advance of need. Reference: Module 3, Section 5.

Choose the document that can be prepared at the time of signing a will that will help prevent later problems in verifying the validity of the will. A. Letters Probate. B. Notarial Will. C. Codicil. D. Affidavit of Execution.

D. Affidavit of Execution. General Feedback: With an affidavit of execution, the court can usually be satisfied that the will was properly signed and that the formalities of execution were all observed. An affidavit prepared while the witnesses are readily available averts later problems in proving the validity of the will, especially in cases where the witnesses might be difficult to locate at a much later date when the testator dies. Reference: Module 3, Section 5.

What is the correct sequence of events for the advisor to follow from start to finish when dealing with a client at the recommendation stage? A. Discuss strategies and recommendations; implement the strategy once approved by the client. B. Discuss strategies and recommendations; allow the client to ask questions and express concerns; implement the strategy once approved by the client. C. Allow the client to ask questions and express concerns; discuss strategies and recommendations; modify and revise your recommendations accordingly; discuss the new recommendations with the client. D. Discuss strategies and recommendations; allow the client to ask questions and express concerns; modify and revise your recommendations accordingly; discuss the new recommendations with the client.

D. Discuss strategies and recommendations; allow the client to ask questions and express concerns; modify and revise your recommendations accordingly; discuss the new recommendations with the client. General Feedback: The following is the sequence of events that should take place at this stage: discuss strategies and recommendations with your clients; allow your clients to ask questions and express concerns; modify and revise your recommendations accordingly; discuss the new recommendations with your clients. Reference: Module 1, Section 2.

Select the coverage that is typically excluded in travel insurance policies. A. Trip cancellation costs. B. Foreign medical expenses. C. Travel home for an injured person. D. Pre-existing conditions.

D. Pre-existing conditions. General Feedback: Most travel policies exclude coverage for pre-existing conditions. An example would be an existing heart condition. Reference: Module 4, Section 1.

Select the correct statement about statutory rights for conventional mortgage prepayments. A. The Canada Interest Act permits borrowers to make prepayments of a mortgage without penalties as of the three-year payment date anniversary. B. The National Housing Act allows restricted prepayments of mortgages without penalties at the 12th and 24th payment-date anniversaries. C. The Bank Act permits any prepayments of mortgages after a period of three years with a maximum penalty of three months' interest. D. The Canada Interest Act allows prepayments of mortgages after the 5th anniversary with a maximum interest prepayment penalty of 3 months.

D. The Canada Interest Act allows prepayments of mortgages after the 5th anniversary with a maximum interest prepayment penalty of 3 months General Feedback: The Canada Interest Act permits prepayment of a conventional mortgage (where the borrower is an individual) after the fifth anniversary of the mortgage, with a statutory maximum prepayment penalty equivalent to three months' interest. The fifth-anniversary rule does not apply to mortgages with corporate borrowers where the terms of prepayment are wholly determined by the contract between the two parties. Reference: Module 2 Section 2.

Which statement correctly captures the process of determining an individual's Registered Retirement Savings Plan (RRSP) contribution limit for the current year (where PA represents Pension Adjustment)? A. The lesser of 18% of the current year's earned income and the RRSP dollar limit for the current year. B. The lesser of 18% of the current year's earned income and the RRSP dollar limit for the current year plus the previous year's PA plus the taxpayer's unused RRSP contribution room at the end of the immediately preceding taxation year. C. The lesser of 18% of the previous year's earned income and the RRSP dollar limit for the current year minus the current year's PA. D. The lesser of 18% of the previous year's earned income and the RRSP dollar limit for the current year minus the previous year's PA plus the taxpayer's unused RRSP contribution room at the end of the immediately preceding taxation year.

D. The lesser of 18% of the previous year's earned income and the RRSP dollar limit for the current year minus the previous year's PA plus the taxpayer's unused RRSP contribution room at the end of the immediately preceding taxation year. General Feedback: The maximum annual tax-deductible contribution to an RRSP is determined by: The lesser of 18% of the previous year's earned income and the RRSP dollar limit for the current year minus the previous year's PA + the taxpayer's unused RRSP contribution room at the end of the immediately preceding tax year. Reference: Module 3, Section 1.